Thomas Cook’s Collapse May Have Been Because Of Debt-Fuelled Expansion

According to the analysis of the Institute of Directors of the United Kingdom, the down fall of the century old travel company Thomas Cook was potentially because the rapid expansion of the company between 2007 and 2011 which was fueled by debt, even as the ex-bosses of the not defunct company get prepared to present evidence to the group of MPs who are investigating its bankruptcy and subsequent shutdown. The company is now in administration.

Former chief executives of Thomas Cook, Manny Fontenla-Novoa and Harriet Green, are set to be questioned over the sudden demise of the company next week by the business, energy and industrial select committee of the UK parliament. The meeting will help to gather more evidence and information about the collapse of the travel agent that had already been gathered from directors last week who were in charge of the company when it went into administration.

It did not believe flaws in the wider corporate governance regime were to blame, said the IoD – one of the UK’s most influential business lobby groups – in written evidence to the inquiry. The lobby group instead suggested that the tenure of Fontenla-Novoa should be the at the focus of MPs. Fontenla-Novoa who was appointed after the ill-fated £2.7bn merger with MyTravel and there was a period of very aggressive expansion financed from debt during her period soon after.

“This may have led to a situation whereby the company was subsequently unable to withstand significant downward shocks to its market environment,” the IoD said and cited setbacks such as terror attacks in tourist destinations and a heatwave which forced travelers and holidaymakers all across Europe from travelling.

“We would be interested to understand the decision-making and oversight process surrounding the acquisition and management of these debt levels,” the IoD said.

The MPs will also ask evidence on the issue from Fontenla-Novoa’s successor, Harriet Green, and the auditors of Thomas Cook. It is likely that the pat outs to the two bosses will come under severe criticism because they were jointly paid a total of £27m.

There were recent reports some of the debt investors of Thomas Cook had even attempted to, and had possibly also succeeded, in preventing a rescue investment for the company from being passed because the investors were hopeful that they could gain monetarily from credit default swaps, which is type of insurance back up for such investors in the eventuality of a company they had invested in fails. Such reports were also described as a cause of concerns by the IoD. The lobby group also agreed to the concerns over directors’ pay and bonuses as had been expressed by the MPs because such payment were worked out on profits made by the company and one-off negative items were not included in the calculations.

A call for a closer examination of how Thomas Cook’s overseas subsidiaries, including the German airline Condor, avoided being placed into liquidation, was given separately in submission to the inquiry by British pilots’ trade union Balpa.

(Adapted from TheGuardian.com)



Categories: Creativity, Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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